Public Services and the Efficiency Treadmill

Recently I had an interesting meeting with a large innovation UK local authority who felt that they (and other public services) needed to embrace radical reform or face the prospect of having to run ever faster in order to keep still. Their worries reflected the budget crunch that most UK public sector bodies are having to deal with. But their main fear was that as incomes rise, the demand for public services rises too only without a corresponding increase in citizen's willingness to pay the taxes necessary to fund them. This point is most obvious in the area of healthcare and personal services (especially for the elderly) but it also applies in education and probably to a certain extent in most service areas. As our houses become more luxurious, we probably also expect our streets to be better maintained and cleaner, and as we jet off on foreign holidays we are probably less tolerant of any transport delays or high costs that we encounter on our way to them. So what should public sector organisations do?

The authority I was talking to were keen to embrace innovative direct provision models - couldn't some of this demand be met directly by the private sector? I think the answer must be "yes", but it is obviously not a magic solution. One of the key questions is who pays and if the answer is the public sector, then this innovation is still about meeting demand more efficiently and effectively rather than deflecting it. For example, in the personal support area giving people individual budgets rather than providing a public sector service can give people more choice, increase the range of potential suppliers (from one!) and lead to more finely-tuned provision. So citizens may get a much better service and potentially that service may cost less. However, what we are talking about here is clearly meeting demand for public sector services in a new way rather than reducing it.

What this authority really wanted, however, was "cost-less public service provision", by which I assume they meant the market satisfying citizen demand that would otherwise have to be met by the public sector. I do think there are some opportunities here, but it is not an easy area. To some extent public bodies can use the fact that we are now in a more connected world to encourage specialised micro-markets that previously would not have been possible and whose absence does put pressure on the public sector. For example, as far as I am aware, the travel industry has not yet developed products for carers in need of a break from their caring duties. This (small) customer segment undoubtedly has specific needs (e.g. a holiday package that includes provision for the cared-for person being left at home or accompanying the carer) and if a market developed to meet those needs, some carers would no doubt take up the offerings and this would have benefits for the public sector (no need for the public sector to provide respite care, longer continuation of the non-state-funded caring solution etc). So there is a role for the public sector to play in encourage new (micro) markets to develop and thrive.

The difficulty, however, is that purely market-driven solutions will not meet a lot of the current demand for public sector services unless our current provision models change in ways that will not be popular with voters (or therefore with politicians). Direct market solutions are only likely to thrive as we move away from free public provision to provision where at least some charge is made. Furthermore, moves in this direction probably mean different levels of provision, i.e. basic service (which would be free or for a nominal charge), premium service, premium plus etc. Against this background, there would be plenty of scope for the market to compete with the public sector (or for the higher levels of service to be provided directly by the market without a subsidy). At this point the problem of increased income leading to higher demand for public services would be eliminated but only because citizens had been educated to expect to pay for those services rather than received them free (or subsidized) from the state.

The other area that is also worth exploring in this context is how citizens can do more for themselves on a self-help basis. So rather than trying to move services from the public sector to the private sector you also explore what the community sector might do, leveraging the fact that connectivity makes it easier to bring people together. I think this is another important element in the puzzle of trying to reduce demands on the public sector. Unfortunately, I don't think any of this means that the public sector will ever be able to get off the efficiency treadmill (which is probably a good thing). Nonetheless it is vital that they explore innovative ideas about how the market and community sectors can help reduce the speed at which the treadmill is turning.